It would be an understatement to characterize the presence and use of social media in our daily lives as being ubiquitous in scope and nature. The proliferation of social media venues allows us to communicate and share ideas and opinions in a manner beyond anything that we have experienced in human existence. The casual observer could easily see the impact which social media has on our personal lives and in the political arena. Clearly, business is not immune to the tool that is social media.
However the use of social media by reporting issuers to communicate with the market and shareholders raises certain issues relating to disclosure and is fraught with traps. The issue was dealt with in the United States when the Securities and Exchange Commission (SEC) stated that issuers may disclose key information on social media outlets to the extent that investors received prior notice as to which social media outlet was being used to publish the information .
The Canadian Security Administrators (CSA), which have traditionally taken a more conservative approach to disclosing information, clarified in a report last week that they do not intend to join the United States’ method of allowing information-sharing on social media pages, unless the disclosure complies with applicable securities laws and regulations. Published on March 9, 2017, CSA Staff Notice 51-348 Staff’s Review of Social Media Used by Reporting Issuers (Notice) directed public issuers to continue to report material information through traditional press releases, clarifying however that social media platforms could be used to disseminate and further publicize news after it is made public on the System for Electronic Document Analysis and Retrieval (SEDAR) .
The Notice was written in an attempt to determine whether the disclosure provided by the new and growing venues complies with the principles enunciated in the National Policy 51-201 Disclosure Standards (NP 51-201) and the requirements of the National Instrument Continuous Disclosure Obligations (NI 51-102). After examining 111 reporting issuers that use social media in Quebec, Ontario and Alberta, the CSA identified three key areas where issuers need to take greater care when disseminating information through these new venues:
- Selective or early disclosure occurs when some investors receive privileged information due to their presence on a social media platform. The CSA specified that the nature of marketing on social media can lead to breaches of obligations that public issuers have under securities law. The CSA also recorded a number of instances where issuers disclosed forward-looking information online without ensuring that this information was disclosed to all stakeholders. Often, companies disclosed information on social media before disclosing it on SEDAR.
- Unbalanced or misleading disclosure on social media disclosure occurs where information is not sufficient to provide a complete picture or is inconsistent with information already disclosed on SEDAR. The CSA reported that issuers often provided a commentary on social media that was inconsistent with their SEDAR disclosures. For instance, they might sometimes disclose non-GAAP measures which were not officially disclosed elsewhere and without the accompanying information that should be included to understand the non-GAAP measures.. Moreover, the very fact that Twitter messages cannot be longer than 140 characters limits the accuracy of the information that can be provided in a single post.
- The social media governance policies in place to support social media activity are lacking or insufficient. A significant number of issuers do not have policies, procedures, and controls in place to ensure that information disseminated on social media reaches the same standards as it would in a regulatory filing. The CSA provided recommendations of some of the elements that ought to be included to ensure good social media practices. These include determining who can post information on the site, what types of sites can be used, what information can be disclosed on the sites, what approvals are needed before the information is posted, and who is responsible for monitoring the social media accounts.
In view of some alarming figures brought forth in the Notice, Canada’s decision to implement stricter social media disclosure guidelines is a responsible approach. Such a position will ensure that all material information reaches investors simultaneously and will ensure it will be complete when published. Clearly, posting a tweet does not amount to a full public announcement and does not constitute wide dissemination of information to the public. Unlike the United States, where an attempt to adopt conservative measures by the SEC was considered a lack of understanding of market realities by the regulatory authorities, the CSA’s report has clearly justified their reasons for holding higher standards for the dissemination of information on social media.
The Notice also reminds issuers that disclosures of material information must be made in accordance with securities laws – no matter what the venue. The danger lies in the fact that social media does not lend itself well to subtle and complex financial disclosure and that such disclosure, without first widely disseminating it, may indeed constitute selective disclosure.
This article was co-authored by Michèle Orr Gaucher.